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UK Companies with a Solid Dividend History

Why does it matter if a company has an increasing dividend history?

There are many questions to ask when investing in shares. One of the more important ones focuses on how long a company has paid dividends?

There are only five UK listed companies that have paid increasing dividends during the last twenty years, or more. This elite group of UK-listed companies, who have consistently increased their dividends, consist of Tesco as the only representative of a FTSE100 listed company!

These tremendous dividend histories confirm these companies’ commitment to paying dividends. Normally a company with a dividend history of 5 to 10 years plus is considered good.

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Even better . . . if their dividends are growing fast!

There are a number of companies that have raised their dividends by 100 per cent, 200, even 300 per cent over a ten year period. But there are only very few companies that have raised their dividends by over 400% during the last 10 years, such as British American Tobacco.

Normally dividend increases that exceed inflation are considered good.

Why do dividend increases matter?

What we are looking for are not just companies that have a solid dividend history, paying out a regular dividend, but companies which have atrack record increasing their dividends year after year, but are also historically undervalued.

In fact we have dedicated a whole different website to this type of company . . .

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When a company decide to increase its dividend it's signalling to its shareholders that it's confident that it will be able not just to continue paying a dividend, but also a rising dividend.
Such decisions are not made lightly.

How increasing dividends will change your fortunes

Take a hypothetical £1 share that pays a five pence annual dividend. You invested £10,000 and you own 10,000 shares. The dividend rises 10% a year and the share price increases equally by the same percentage -this is what happens next:

Year

Share

Dividend£

Current

Yield on

Annual

Price£

Yield%

Cost%

Dividends

Paid£

1

1.00

0.050

5.0%

5.0%

£500

2

1.10

0.055

5.0%

5.5%

£550

3

1.21

0.060

5.0%

6.0%

£600

4

1.33

0.066

5.0%

6.6%

£660

5

1.46

0.072

5.0%

7.2%

£720

6

1.61

0.079

5.0%

7.9%

£790

7

1.77

0.087

5.0%

8.7%

870

8

1.95

0.095

5.0%

9.5%

£950

9

2.14

0.104

5.0%

10.4%

£1,040

10

2.36

0.114

5.0%

11.4%

£1,140

15

3.79

0.181

5.0%

18.1%

£1,810

20

6.10

0.288

5.0%

28.8%

£2,880*

25

9.81

0.460

5.0%

46.0%

£4,600

30

15.77

0.739

5.0%

73.9%

£7,390

Key points to consider

*In 20 years the current dividend yield remains at 5.0% of the most recent share price. But for long term shareholders, the way to value the dividend is to view it as yield on the original investment (Yield on Cost %). Though the value of the original investment has risen over the years, the cost has not changed.

In 20 years the stock that was purchased for £1.00 is now worth £6.11, meaning that the original investment of £10,0000 has now grown to over £60,000. In addition you are now receiving a £0.288 annual dividend which means that the yield on your cost (£10,000) is 28.8% or £2,880 in income per year!

If the dividend is not cut, you will receive, year in and year out, your annual yield on investment of 28.8% or (£2,880).

However, if the company continues to increase the dividend payout by 10% each year, the 28.8% will grow to 31.6% (£3,160) and the following year to 34.7% (£3,470), etc.

Between years 8 and 9 from the dividend income alone (without any stock appreciation) your annual rate of return would be at the historic average stock market return of 10% and growing!